(V) Migration Flows and Policies. Bocconi University,

Transcription

1 (V) Migration Flows and Policies Bocconi University,

2 Outline We ll tackle 3 questions in order (both theoretically and empirically): 1. What s the impact of immigration for the host country? Positive & normative view 2. Why do individuals/families migrate? 3. Who decides to migrate (e.g., skill content)?

3 1.1 Impact of immigration for natives (positive perspective) Assume immigrants and natives are perfect substitutes in production. As immigrants enter the labor market, the supply curve shifts to the right Total employment increases The equilibrium wage decreases Increases in immigration reduce the wages and employment of native-born workers However, native-born workers may be able to increase their productivity since they can specialize in tasks better suited to their skills. Hence, complementary native workers will have higher wages

4 The short-run impact of immigration when immigrants and natives are perfect substitutes Dollars Supply w 0 w 1 Demand N 1 N 0 E 1 Employment

5 The short-run impact of immigration when immigrants and natives are complements Dollars Supply w 1 w 0 Demand N 0 N 1 Employment

6 Empirical (spatial) tests Previous theory suggests simple way to test whether immigrants are substitutes or complements: Compare earnings of natives in cities/regions with different incidence of immigration These spatial tests usually detect small (negative, if any) effect of immigration on natives wages or employment prospects

7 Influential study by Card (1990) Natural experiment: in April 1990, Castro declares that it s possible to leave Cuba from the port of Mariel 125,000 leave Cuba (including Tony Montana, alias Al Pacino) for Miami Aim: estimate impact of Mariel Boatlift immigration on low-skilled US workers Identification strategy: diff-in-diff comparing treated (Miami) vs. control cities (Atlanta, LA, Houston & Tampa). See Figure 1 in the handout

8 Diff-in-diff econometric framework Treatment: labor market receiving Mariel boatlift shock Potential outcomes in city c at time t: E(Y 1i c,t) observable if c=miami & t>1980 E(Y 0i c,t) observable otherwise Impose restrictions on conditional mean f: E(Y 1i c,t) = β t + γ c + δ E(Y 0i c,t) = β t + γ c

9 Diff-in-diff econometric framework Then: (contd.) [E(Y i c=miami,t=1981)-e(y i c=other,t=1981)] - [E(Y i c=miami,t=1979)-e(y i c=other,t=1979)] = δ (treatment effect) If M i dummy equal to Miami after 1980: Yi= β t + γ c + δm i + u i (by OLS) Yi= X i β 0 + β t + γ c + δm i + u i (by OLS) Key identifying assumption: common trend See Table 4 in the handout for the results

10 Are spatial tests credible? Econometric caveat : diff-in-diff assumption may be violated Angrist and Krueger (1999): the Mariel Boatlift That Never Happened in 1994 (Clinton Administration) This placebo test on missed natural experiment shows significant estimates! See Table 7 in the handout: diff-in-diff gives +6.3 (s.e. 3.7) on unemployment of Blacks

11 Are spatial tests credible? (contd.) Theoretical caveat : if workers/firms vote with their feet, macro effect is not captured First case: labor mobility. Supply falls in treated cities & increases in control cities Second case: capital mobility. Demand increases in treated cities But: spatial tests still capture short-run effect and something more if mobility is less than perfect

12 1.2 Impact of immigration for natives (normative perspective) Efficiency result: migration/mobility efficient for the social planner If W=MP, workers migrate to areas with higher wages, and social planner would like to do the same (i.e., move people to areas with higher MP) But: in the real world, frictions because of information & mobility costs & compensating wage differentials And also because of policies (inefficient?)

13 Immigration surplus Dollars A w 0 w 1 0 N S B S M C D Employment Prior to immigration, there are N native workers in the economy and national income is given by the trapezoid ABN0. Immigration increases the labor supply to M workers and national income is given by the trapezoid ACM0. Immigrants are paid a total of FCMN dollars as salary. The immigration surplus gives the increase in national income that accrues to natives and is given by the area in the triangle BCF. But: firms gain while native workers lose (adjustment costs). Also note: no surplus if no wage loss (flat D).

14 The economic benefits of migration IS = increase in national income that occurs as a result of immigration and that accrues to natives (capital) If LD infinitely elastic: no surplus If LD elasticity finite: IS=1/2 (w 0 -w 1 )(M-N) Then: IS/GDP = 1/2 (w 0 -w 1 )/w 1 (M-N)/M Mw 1 /GDP % in w % in E share E in GDP Back-of-the-envelope calculation for the US: IS/GDP= 0.50 x 0.03 x 0.10 x 0.70 = (0.1% GDP)

15 Imperfect labor markets In imperfect labor markets, migration may affect income of natives in various ways: changes in wages changes in employment, and changes in unemployment taxes other externalities related to U? (crime?)

16 2 Why do people move? Migration as human capital investment: PV H =w H + w H /(1+r)+.+ w H /(1+r) N PV D =w D +w D (1+r) + +w N /(1+r) N Worker migrates if: PV D -M>PV H where M are economic and psychological mobility costs Then: w H Prob migration M Prob migration w D Prob migration Migrants usually younger and more educated Return and repeat migration

17 Migration as a family decision Private Gains to Husband ( PV H ) H migrates in A, B, and C W migrates in C, D, and E Family migrates in B, C, and D A Y B 10,000 C D (B), husband (wife) tied mover E (A), wife (husband) tied stayer -10,000 10,000 Private Gains to Wife ( PV W ) F -10,000 E X D PV H + PV W = 0

18 3 Who decides to move? Deterioration in quality of migrants can be mistaken for assimilation of migrants Data problem Assume that wages of migrants follow this path: W= β 0 + β 1 Age + β 2 Cohort Since Cohort=(Time-Age): W = β 0 + (β 1 β 2 )Age + β 2 Time Then: (β 1 β 2 )>β 1 if β 2 <0 Look at following graph: Lower starting point for immigrants (lack of specific skills) Steeper age-earnings profile (consistent with human capital theory) Immigrants end up earning more than natives (positive selection?)

19 The age-earnings profile of immigrants and natives in the cross-sectional evidence 9,000 Immigrants Annual Earnings (1970 Dollars) 8,000 7,000 6,000 5,000 4, Age Natives

20 The age-earnings profile of immigrants and natives in repeated cross sections: An example Assuming workers migrate at age 20 No convergence, but simple cohort effects

21 Evolution of wages for specific immigrant cohorts: longitudinal evidence Relative wage of immigrants who arrived when they were years old 0.1 Arrived in Log wage gap Arrived in Arrived in Arrived in Year

22 The Roy model Decision to migrate when skills are heterogeneous Returns to skills different in 2 countries W H = α 0 + α 1 S W D = β 0 + β 1 S Workers migrate if: β 0 + β 1 S > α 0 + α 1 S β 1 > α 1 : inequality higher in destination country positive selection (brain drain) β 1 < α 1 : inequality higher in home country negative selection That is: the relative payoff for skills across countries determines the skill content of immigration flows

23 The distribution of skills in the home country Frequency Negatively-Selected Immigrant Flow Positively-Selected Immigrant Flow s N s P Skills

24 The self-selection of the immigrant flow Dollars Dollars U.S. Source Country Source Country U.S. Do Not Move Move Move Do Not Move s P Skills s N Skills (a) Positive selection (b) Negative selection

25 Comparative statics: decline in U.S. income or increase in mobility costs Dollars Dollars U.S. Source Country Source Country U.S. s P Skills s N s N Skills (a) Positive selection (b) Negative selection

26 Migration and a minimum guaranteed income Income Income country 1 country 1 country 2 country 2 skill level s* s** s* skill level skilled migrants go to country 1 safety net in country 1: unskilled migrants go to country 2 also the unskilled go to country 1

27 The Roy model (contd.) So far, we have assumed positive correlation of skills returns in home and destination country But it could be negative: e.g., refugee sorting (which is a kind of positive selection) Empirical evidence somehow consistent with implication of Roy model: The higher earnings inequality in the home country, the lower earnings of immigrants in the destination country

28 Appendix What about policies? Migration as great absentee in the era of globalization. Migration policies restrict the movement of persons across countries by establishing: quotas in terms of maximum number of work permits; rules concerning the allocation of quotas, admission procedures and length of permits; years/procedures to obtain citizenship; rules for asylum policies. Political economy reason: redistributive policies favoring low-skilled workers

29

30 Trends in migration policies (FRDB) 160 Immigration policy indexes Admission requirements Staying requirements Number of administrations involved Asylum policy Length of first stay Years to obtain a permanent residence permit Quotas

31 Evolution in individual countries

32 Closing the welfare door? Restricting immigration inefficient, but what about welfare policies? Closing welfare door popular policy. It would address concerns of public opinion It would affect the size of migration flows more than their skill composition Difficult to enforce Problems in the assimilation of migrants Equity considerations

33 Fiscal effects

34 Adopting a point system? Skilled migration is better for rigid countries Simplification of policies (including asylum) Is it effective in selecting migrants? Risk of brain drain? Equity considerations

35 Migration policies are already getting selective Everywhere tightening of migration policies towards the unskilled While race to attract highly skilled migrants Explicit point systems in an increasing number of countries (Canada since 67, Australia since 84, New Zealand since 91, Switzerland since 96)

36 Skill distribution of migrants ad natives (IALS scores) Germany New Zealand